Does Pay For Performance Make Sense For Sponsorship?
BY ADAM GROSSMAN
Yesterday, Anheuser-Busch announced a decision to utilize "a new sponsorship model that promises to shake up the industry. It is built on incentives for performance on the field, pitch or court, as well as off of it". In 2012, B6A explored a similar approach The Emirates Group employed with the Arsenal as part of a larger deal including a jersey sponsorship. That blog post is included below.
The Arsenal Football Club and The Emirates Group recently made news when the Dubai based airline announced there had incorporated performance-based clauses in its sponsorship agreement with the English Premiere League team. Emirates and Arsenal have a five-year contract that pays Arsenal £30 million ($48.6 million) in annual fees for partnership inventory including a jersey sponsorship. While Arsenal has qualified for the Champions League every season for the past eight years, it has not won a major title during this span (FA Premiere League, FA Cup, and UEFA Champions League). If the team fails to qualify for the Champions League or does not perform well in the Premiere League then, "There are certain clauses, from 2015, that we pay them a percentage less if they don't perform," Emirates SVP Boutros Boutros said. "It's fair to us and fair to them."
On the surface, it does seem fair. Sports organizations should absolutely be held accountable for their performance with regards sponsorship agreements. The question is what the definition of performance. More importantly, does competitive performance always translate to a successful sponsorship?
The answer is both yes and no. A team should be evaluated on both the quantity and quality of the impressions it delivers to corporate partners through inventory items like jersey sponsorships.
Quantity of impressions is relatively easy to define. It is generally considered to be the number people who view, consume, or experience an inventory item. For a corporate partnership agreement, a team should estimate the total number of impressions for each inventory during the course of the year. It should be rewarded for exceeding this number and penalized for missing these estimates.
Quality of impressions, however, is more difficult to define. At Block Six Analytics, we define the quality of impressions by a sports organization’s ability to help its partners to increase revenue and meet sponsorship goals. By increasing revenue, B6A recognizes that different types of impressions can generate differing amount of revenues. For example, arena / stadium signage likely does not have the same impact on new customer acquisition or customer attention as having a partner’s core customers attend a game in a luxury suite. It is not that the stadium / arena signage in not a valuable piece of partnerships inventory. It is that that the luxury suite is more valuable to the partner because it targets specific customers and creates in an environment that is more likely to generate revenue.
Not all partnerships, however, are about generating revenue. Therefore, it is critical to define what the sponsorship goals are for each partner. Enhancing brand perception through sponsoring a community’s professional, collegiate, or high school team has a higher priority for many partners than increasing revenue. Sports organizations can be evaluated for its ability to maximize this type of impressions as well.
The Emirates deal, and the fairness component of this deal, appears to focus more on the quantity of impressions. Most of the Champions League value comes from the media rights deals for tournament games. If Arsenal does not qualify for the Champions League then the team will not be able to broadcast its jersey sponsorship to the hundreds of millions of fans who watch the tournament each year. This will decrease the overall number of impressions. However, it is not clear how much it will decrease quality of impressions. Most of the impressions from a jersey sponsorship go towards increasing brand awareness to viewers watching television broadcasts. While these are valuable, these impressions may not be as valuable those that go directly to increasing customer acquisition and customer retention.
This goes to the heart of return on investment (ROI) calculations when it comes to sponsorship. Winning generally does help increase awareness and interest in a team or individual. This translates into increases in gameday attendance, television ratings, and unique visitors the organization’s websites. While this is good for the sports organization, corporate partners need to ensure that these new impressions actually generate profitable revenue growth or help meet sponsorship goals for their organizations. Simply generating a massive number of impressions can no longer be the standard used to evaluate partnership value. Books like Sasha Issenberg’s The Victory Lab: The Secret Science of Winning Campaigns shows how successful political campaigns use microtargeting to focus on the most valuable voters – people who can be persuaded vote for a specific candidate but only after being contacted by a campaign with a specific message.
This same logic should be applied to corporate partnerships. For example, Arsenal could provide Emirates with introduction to team fans or other sponsors that make enterprise purchasing decisions about corporate travel. This type of introduction could occur whether the team is losing or winning on the field. More importantly, this is the type of microtargeted impression that is much more likely to deliver increases revenue to the Emirates than if the team qualifies for the Champions League.
While usually aligned, winning in competition can mean something entirely different than winning with the corporate partnerships. It is definitely a good idea to hold sports organizations accountable for sponsorship spend. Partners need to ensure that they are holding sports organizations accountable in the right way.